CHINA’S biggest brokerages are getting squeezed on two fronts as regulators curb loans to equity traders.

    Not only does the three-month ban on new margin-trading accounts at CITIC Securities and Haitong Securities reduce their potential earnings from lending to clients, it also curbs one of the biggest buyers of the firms’ own shares: margin traders.

    The brokerages are among the top five holdings of investors using borrowed money, according to Shao Ziqin, a Shenzhen-based analyst for CITIC Securities, who cited calculations as of Jan. 15. Of the top 20, six were brokers and seven were banks. They all plunged yesterday as the Shanghai Composite Index headed for the biggest drop since 2008.

    “Bank and brokerage stocks will definitely be the hardest hit since leveraged funds helped push up their share prices in the first place,” said Zhang Yanbing, an analyst at Zheshang Securities Co. in Shanghai.

    Investors borrowed 32.6 billion yuan (US$5.2 billion) to buy CITIC shares as of Jan. 15, accounting for about 3 percent of outstanding margin loans, according to Shao, who cited Wind Information Co. data. Haitong purchases had attracted 14.8 billion yuan of margin loans.

    The total amount of shares purchased on margin has surged more than tenfold in the past two years to a record 1.1 trillion yuan, or about 3.5 percent of the nation’s market capitalization. In a margin trade, investors use their own money for just a portion of their stock purchase, borrowing the rest from a broker. The loans are backed by the investors’ equity holdings, meaning that they may be forced to sell when prices fall to repay their debt.

    CITIC Securities said yesterday that its operations remain unchanged, including a plan to sell shares via a private placement in Hong Kong. Haitong Securities board secretary Jin Xiaobin declined to comment when contacted.

    While shares of both brokerages tumbled by the daily 10 percent limit in Shanghai trading yesterday, they are still sitting on gains of more than 100 percent in the past 12 months. That compares with a 56 percent increase in the Shanghai Composite Index.

    Brokerage shares will remain under pressure in the next few days, said Ryan Huang, Singapore-based market strategist at IG Ltd. Regulators are concerned the world-beating gains in the country’s equity market have been too fast, he said. (SD-Agencies)